RBI restricts Kotak Bank's digital operations due to critical tech and compliance lapses

The Reserve Bank of India (RBI) has taken supervisory action against Kotak Mahindra Bank Limited for failing to act on tech and compliance deficiencies.

Kotak Mahindra Bank has been directed to immediately cease onboarding new customers through its online and mobile banking channels and issuing fresh credit cards.

"These actions are necessitated based on significant concerns arising out of Reserve Bank’s IT Examination of the bank for the years 2022 and 2023 and the continued failure on part of the bank to address these concerns in a comprehensive and timely manner" RBI said in a statement.

The RBI observed that the bank has failed to build IT systems and controls commensurate with its growth, leading to material deficiencies in operational resilience.

The rapid growth in the bank's digital transactions, including credit card transactions, is further straining its IT systems, the regulator noted.

The bank's Core Banking System (CBS) and online and digital banking channels have suffered frequent and significant outages in the last two years, resulting in customer inconveniences.

Serious deficiencies and non-compliances were observed in areas such as IT inventory management, patch and change management, user access management, vendor risk management, data security and data leak prevention strategy, business continuity and disaster recovery, the central bank said.

"In the past two years, the Reserve Bank has been in continuous high-level engagement with the bank on all these concerns with a view to strengthening its IT resilience, but the outcomes have been far from satisfactory" RBI said.

The RBI has been busy this year, taking supervisory actions against several banks and financial institutions for various compliance and operational deficiencies.

The RBI widened its curbs on Paytm's Payments Bank, barring it from offering many banking services, including accepting fresh deposits and credit transactions across its services. This was due to persistent non-compliances and continued material supervisory concerns found in the bank

In March 2024, the RBI barred JM Financial Products from undertaking business in shares and bonds funding due to serious deficiencies observed in loans sanctioned for IPO financing and NCD subscriptions.